Rate hike unlikely as consumer inflation slows

HEADLINE consumer inflation dipped below the top end of the SA Reserve Bank’s target in August, to its lowest in nine months, data showed yesterday, suggesting interest rates would remain unchanged at this week’s monetary policy meeting.

Inflation has been trending lower since peaking at 7% in February, partly helped by a stronger rand, which is up about 12% against the dollar so far this year, after losing a quarter of its value in 2015.

Consumer inflation slowed to 5.9% year-on-year in August, from 6% in July, data from Statistics SA showed.

Economists polled by Reuters correctly predicted CPI would come in at 5.9%, within the Reserve Bank’s (SARB) 3% to 6% target band.

“This is good news from an interest rate perspective,” KPMG senior economist Christie Viljoen said.

“While the SARB will certainly not lower interest rates this year, a moderation in inflation forecasts could result in a longer pause in its monetary policy tightening cycle.

The rand held firm against the dollar after the CPI data, helped by strong appetite for high-yielding emerging market assets, as investors expect the US to keep interest rates low for longer this year.

The SARB has hiked the benchmark repo rate by a cumulative 200 basis points since the start of 2014, but left it unchanged at 7% at its May and July policy meetings. – Reuters